Canadian Poison Pills: Bitfarms and Greenfire Analysis

Recent cases before Ontario’s Capital Markets Tribunal and the Alberta Securities Commission offer valuable insights into when a company can implement a shareholder rights plan without shareholder approval. These decisions shed light on the regulatory stance towards target boards using defensive measures to protect themselves from activists or change control initiatives in what they believe to be the best interests of the company.

In a recent ruling, the Ontario Tribunal terminated a shareholder rights plan put in place by Bitfarms Ltd. The plan prevented any individual from acquiring more than 15% of Bitfarms shares without making a formal takeover bid. The purpose was to prevent Riot Platforms, Inc., a 14.9% shareholder, from gaining what Bitfarms considered negative control. Negative control would essentially allow Riot to block important decisions requiring a two-thirds shareholder approval, potentially hindering beneficial transactions for the company.

Similarly, the Alberta Securities Commission ceased a shareholder rights plan adopted by Greenfire Resources Ltd. This plan was implemented following an announcement by Waterous Energy Fund Management Corp. of their intention to acquire a significant ownership stake in Greenfire. Greenfire claimed this move was an attempt by Waterous to carry out a creeping takeover bid for negative control of the company.

Key takeaways from these cases:
1. It’s challenging for a target board to implement a shareholder rights plan with a trigger below 20%. The Ontario Tribunal rejected a plan with a 15% threshold, even though Bitfarms argued it was necessary to prevent negative control.
2. The “business judgment rule” may not protect a target board if they use defensive tactics that impede a change of control transaction. The ASC ceased a shareholder rights plan aimed at preventing private agreement transactions compliant with takeover bid rules exemptions.
3. Implementing a shareholder rights plan after the fact to obstruct a legitimate takeover bid exemption is unlikely to withstand regulatory scrutiny.

In the Bitfarms case, the Ontario Tribunal emphasized the importance of shareholder choice and the principles underlying securities laws. They highlighted the bid regime’s goal of facilitating orderly changes in control while balancing the interests of target shareholders and market participants.

Overall, these cases provide valuable guidance on when and how companies can implement defensive strategies like shareholder rights plans, emphasizing the need for transparency, equality, and shareholder empowerment in the midst of potential takeover bids.